Help with BRRRR calculator for cash flow

[Account Closed]

Hello BP family,

My wife and I are looking at a 4/5 plex in Carson city NV, can anyone help me with the cash flow numbers on the BRRRR calculator. I've watched 2-3 Brandon BP videos and I'm not getting to the bottom line or answer on this property. Can anyone shed some light on this property?

4 units in same building plus one detached unit (5th) next to carport, Im going to try to buy this property using the BRRRR and I'd like use the 5th unit as an office to keep it out of a commercial loan scenario.

Property is $550,000.00 - rent for all 5 units comes out to $4250.00 a month and the rent is under current market value. How much should I pay for this property if the total rent is only $4250 for all 5 units.

thank you for any insight.

[John Leavelle]

Howdy @Account Closed

Are you saying the asking price is $550K? Or is that the After Repair Value (ARV)? What is your Rehab estimate?

To figure out what your Offer price should be you need to know what the Market Value is. The problem is it currently is considered a commercial property. That is probably the way the Seller is listing it. It doesn't matter if you rent the 5th unit or use it for an office. That's your decision. Since it is a Commercial deal they will be using the Income approach to determine Value. In other words NOI and Cap Rate.

Normally for a Residential (1 - 4 unit) Property you do your calculations this way:

All-in cost Target = ARV x Refinance LTV (70% - 80%). Let's use 75%.

All-in = $550K x 75% = $412.5K

Offer price = $412.5 - Rehab Costs - Holding Costs - Closing Costs 

Let’s say you have $30K Rehab, $7K Holding, $6K Closing (2 Closings)

Offer price = $412.5 - $30K - $7K - $6K = $369.5K

Your Offer price would need to be close to $369,500.  It needs to be this low if you want to payoff your original loan and get 100% of your cash back.

Is this property in bad enough condition to justify a lower Offer price? That is key to the BRRRR strategy.